Deutsche bank starts talks to sell gold fixing seat-sources

Fri Jan 24, 2014 12:12pm EST

* Deutsche in talks with prospective buyers -sources

* Seeks clarification on market-maker status for buyer

* Asia banks seen in the frame but fix seen as hard sell

By Clara Denina and Jan Harvey

LONDON, Jan 24 (Reuters) - Deutsche Bank is talking with prospective buyers about selling its place in the global gold and silver price setting process, known as the "fix", sources familiar with the situation said on Friday.

Deutsche said on Jan. 17 it would seek a buyer for its fixing seat, which it had held since 1994 after buying Sharps Pixley from Kleinwort Benson.

The move follows its recent decision to withdraw from the bulk of its commodities business. Also European regulators have launched investigations in recent months into suspected manipulation of precious metals prices by banks.

Sources said talks are at an early stage. Meanwhile, the bank is asking the London Bullion Market Association (LBMA) for clarification on whether a buyer would have to be one of the LBMA's market-making members, who quote two-way prices to each other during the London business day for agreed minimum quantities, they said.

A Deutsche Bank spokesman declined to give any update on the situation to date.

"The key issue ... is whether or not the new fixer needs to be a market maker. They will be looking for a company with stature and credibility and not necessarily just the best price - someone who will add status to the fix," one industry source said.

If the buyer does not have to be a current market maker, it increases the likelihood that a candidate could emerge from Asian banks looking to raise their profile in the London market. Asia is taking a more important role in the gold industry as supplies of physical metal move eastward.

Bank of China (BoC) and Industrial and Commercial Bank of China (ICBC) have both already become members of the LBMA. ICBC is also about to complete the acquisition of the London commodity arm of Standard Bank , another member of the London Bullion Market Association.

Both banks declined to comment on whether they are interested in joining the fixing group.

HARD SELL

Four other banks are currently involved in the gold fixing process - Bank of Nova Scotia-ScotiaMocatta, HSBC Bank USA, Societe Generale and Barclays - and the first two are also involved in fixing silver.

N.M. Rothschild and Sons was the last fixer to sell its seat, to Barclays in 2004. According to market sources, the sale took place for around 1 million pounds ($1.7 million).

Selling the fixing seat may be a tough task as the price-setting process, along with that for other commodity benchmarks, has come under increasing scrutiny from regulators including Germany's Bafin, the UK's Financial Conduct Authority, and the U.S. Commodity Futures Trading Commission over the past 12 months, after the London Interbank Offered Rate, Libor, was rigged by British banks.

The fixing process takes place twice a day, at 1030 and 1500 London time.

Members relay net interest from clients, based on orders placed with their dealing rooms, to the other fixers, who adjust prices up and down until buy and sell orders are matched. At that point, the price is declared 'fixed' and all orders are executed.

Gold market participants insist that the fix is transparent.

"The fixing is unlike a currency fixing or a Libor determination in that it is based on actual transactions, physical flows," one gold market source said.

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